- 4Q25 results were broadly constructive, with engine OEMs highlighting strong aftermarket activity driven by higher shop visits, robust spare-parts demand, and installed-base growth, leading the majors to guide 2026 earnings above consensus expectations
- Aircraft OEM updates were more mixed, as Airbus guided to around 870 deliveries in 2026, below expectations due to ongoing P&W GTF shortages, while Boeing pointed to a material uplift in deliveries as production stabilises
- Middle East conflict has limited spillover to commercial aerospace, with the sector’s core drivers largely intact. Aircraft utilisation may dip temporarily due to airspace closures and rerouting, but higher fuel prices should drive fleet renewal. Meanwhile, aftermarket remains supported by a large installed base and shop visits booked well in advance
- We remain constructive on the sector but see more favourable risk-reward in aircraft OEMs, where delivery ramp-ups and operating leverage to production normalisation offer greater upside relative to engine makers trading at stretched valuations
Related insights
Commercial aerospace offers relative calm in the storm amid the Middle East conflict, as the disruption is hitting airline economics far more directly than the sector’s underlying demand drivers. Airspace closures and rerouting are raising flight times and fuel costs, which should weigh on airlines and cause a temporary dip in aircraft utilisation in 2Q26. For commercial aerospace, however, the read-across is more manageable: while some fear that disruption at airlines could lead to aircraft deferrals, higher fuel prices strengthen the case for fleet renewal and increase the incentive to take delivery of newer, more fuel-efficient aircraft. The aftermarket should also remain resilient, supported by a large installed base and shop visits booked well in advance, while the Middle East is not a critical supply-chain node in the way Russia was. Taken together, the conflict is more of a near-term earnings headwind for airlines than a thesis-changing shock for commercial aerospace, unless the disruption becomes prolonged.
Recent 4Q25 results reinforced the widening performance gap between engine OEMs and airframe manufacturers, with aftermarket demand continuing to drive earnings momentum across the sector. GE Aerospace, RTX, and Rolls-Royce all highlighted strong services activity, supported by higher shop visits, robust spare-parts demand and continued installed-base growth, leading all three to guide 2026 earnings above consensus expectations, with Rolls-Royce also announcing an outsized GBP7-9bn multi-year share buyback programme. Airbus reported a solid 4Q25 result, but its 2026 delivery guidance of around 870 aircraft came in below expectations as ongoing P&W GTF engine shortages continue to constrain the production ramp. Boeing’s update was more constructive, with management guiding for a material uplift in aircraft deliveries as 737 and 787 production stabilise. Overall, 4Q25 reinforced the same sector dynamic: engine OEMs continue to benefit from strong aftermarket growth, while airframe OEMs remain more exposed to engine shortages and production execution risk.
Remain constructive on the sector given limited spillover from the Middle East conflict; risk-reward for aircraft OEMs are more favourable versus engine makers. Aftermarket demand should stay steady despite near-term travel demand fluctuations, but we believe there could be some downside risk if airlines accelerate retirements of older aircraft. Much of this strength already appears reflected in valuations, as the key engine OEMs are trading at stretched multiples in the 30s to 40s on a P/E basis. In contrast, aircraft OEMs still trade at attractive valuations given lingering execution and supply-chain concerns. Given their high operating leverage to production normalisation, mix and pricing, we see greater upside if delivery bottlenecks ease and confidence in rate ramp-ups improves.
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